The Subprime Crisis: Clinton’s Legacy?
Anyone who follows the stock market has heard about the subprime mortgage problems that have sparked several panics in the past few months. Thomas Sowell points out on NRO that government restrictions on building are at the root of the subprime problem. He points to the recent rise of risky income-only mortgages, which were less than 10% of mortgages in 2002, and by 2006 that figure had risen to 31%. In the San Francisco area, that figure is 66%.
Why so many of these concentrated around San Francisco? Sowell thinks it’s partly due to skyrocketing housing prices in that area, which in turn result from severe government restrictions on building.
He also points out that the Community Reinvestment Act allows politicians to pressure lenders to make riskier loans. I remember seeing a spate of stories along those lines a few years ago: Evil banks were refusing to lend at good rates for mortgages in poor minority neighborhoods, no doubt due to their seething and irrational racism. This 1999 article from the Cato Institute claims that the Clinton administration was aggressive in enforcing the CRA. It makes me wonder if our current stock market woes could be one last bit of the Clinton legacy catching up to us.